5 Essential Investment Perspectives
In any game how could you win if you don’t know the rules? Even if you do know the rules how likely are you to win if you don’t understand how the game really works? Once you understand the game you may still have to work at it, but at least then you would stand a fighting chance.
Unfortunately, most investors are oblivious to the flaws and conflicts that are inherent in the current investment world. In the past it may not have been necessary to understand these complexities as markets still functioned reasonably well. However this has changed in a big way. The flaws and conflicts have now become dominant, which is why it has become essential to understand them.
Once the financial system becomes based on dishonest money, commerce becomes dishonest, every development that is built on this foundation is fundamentally unsound. Eventually, the whole system becomes a house of cards where continual extraordinary measures are needed to keep the scheme going. Investment risks have never been greater or more hidden from investors. Hiding the real core issues has now even become an imperative to keeping the scheme going.
What do you need to know? If our roles were reversed what would I hope you would tell me to give me that fighting chance to do well over time at this very critical time. Here are the 5 essential investment perspectives that I believe most investors need to know but may not.
If passion rules the mind it is very hard for anyone to hold ideas that are against their own best interest. So, what if banks have a strong preference or need for inflation even though investors and households do not? Could that be a major source of conflict between these different groups? Would this then need to be disguised through so much economic gobbledygook?
Looked at from this perspective, economic disputes can simply be reduced to the initial premise. Everything else follows from there. Different groups simply have an interest in different outcomes and therefore need different economic theories to fit their objectives.
Jim Rickards explains how banks, governments, investors and households have very different objectives. For now banks have the upper hand but they have cornered themselves in their own argumentation with very poor results and consequences for everyone else.
About the worst time ever to be a static allocation investor
John Hussman provides an invaluable assessment of historical market valuation. He shows that today markets are now at a terrible juncture for long term static investment returns. He calculates the current time as amongst the worst 2% of periods ever, in terms of conditions for results.
All the problems that created the 2008 crash are much worse and the financial system is now even more fragile than ever
Charles Hugh Smith explains that the efforts to avoid a repeat of the 2008 financial collapse have been counterproductive and have clearly failed. This leaves the system now more fragile than ever.
The US is chronically insolvent
Boston University economics professor Laurence Kotlikoff explains the real state of finances in the US. This is not new or even contested. It is just not widely known or understood and any serious discussion to address this issue seems to be systematically avoided ( https://chrisbelchamber.com/the-inform-act-basic-us-accounting-honesty/).
This is such a major issue, it is astonishing that there is no sensible dialogue about it, let alone the prospect of any sound resolution.
Debt Breaking Bad
Perhaps the most important concept in investment and finance is debt. However, it also appears to be the least well understood. Jim Quinn has done a masterful job of explaining the central role of debt in the US economy. Debt has become the driver of the economy, in terms of growth, rewards and control. It has also become a seemingly insurmountable problem suffocating economic growth and development. I have shown before that exponential growth in debt over the last 45 years has coincided with a relentless decline in long term growth (https://chrisbelchamber.com/investment-strategy-through-the-current-crack-up-boom/).
Here is Jim Quinn’s excellent series of articles:
These 5 Essential Investment Perspectives may appear at first sight to be an avalanche of problems. This is only so because these issues have been hidden so well from the great majority of investors for so long. However, armed with this knowledge investors have a substantial head start over the great majority of investors. With genuine insight it becomes possible to see the conflicts and outcomes in real time rather than in reaction when it’s too late to act.
Diversification is crucial, but also standing still with any portfolio could be very dangerous. Given the heightened degree of the current financial predicament, reversals and new trends could very easily materialize at any time.
This is why it is very important to have a system that can quickly adapt to new circumstances as soon as they appear.
Here is a good starting point to an adaptive approach that reacts in real time as the economic system develops. In a highly complex and unstable situation, it will be crucial to have an approach that can remain in sync with increasingly extreme cycles and unusual circumstances.